Grab onto whatever has real value. Currency depreciation on the way.

What a week. Work and work. Honestly, I really wonder how much longer I can keep it up writing this blog. If I continue thinking of the market even during my off days, I will probably forget the rest of my life. Would like to get a new toy to distract myself however my mind is a blank when it comes to thinking of things to buy for entertainment. If anyone out there that has a good idea of what to buy, feel free to drop me a message.

So we did rally one more week didn't we? Most of the world is looking for a meaningful correction in the equity markets after a great September. Well I guess it is not here yet. Remember what I said last week? USD is still weak, market is still strong. Investors are now looking forward to QE2 that is why it is being discounted in the market. A further catalyst was the CME (comprehensive monetary easing) introduced by the Bank of Japan. The Japanese showed how desperate they were in jumping ahead of the Fed and went ahead to cut interest rates and expand their balance sheet through the outright purchase of debt. The race is on! Developed countries are going to go on a currency race to see who can depreciate the fastest. It is not wonder that gold has rallied to new all time highs.

Expectations of investors now are on the Fed going ahead with the their plans for quantitative easing part 2. That is why the markets have done so well over the past month and risky assets have all rallied. When I mean rally, I mean up more than 10% over a month! Some experts out there are warning on the fact that risky assets have rallied, the Fed may hesitate in implementing QE2. I would like to point out that these so call experts are very wrong in their argument because the Fed's reason for considering QE2 is to fight off deflation and to boost the slowing growth, not to boost asset markets. Therefore, I am sure they will implement some form of QE, especially after Japan went ahead to do it first.

There is no doubt that the rally we are witnessing is currently liquidity driven more than fundamentally. The problem here is, liquidity can disappear anytime (not that I think it is going to disappear anytime soon), fundamentals last. Enjoy the rally while it continues, asset prices will continue to inflate as currencies continue to depreciate. It is worrying because the very money which we hold in our wallets are losing value and confidence is starting to wane.

The Fed has indicated their intentions, the BOJ has moved and the ECB remains quiet. The poor Europeans, their Euro is going to be the strongest currency amongst all the developed economies currencies. Expect more news to come out of Europe going forward. Spin doctors are going to go ahead and push out stories about how one of their peripheral members may default. Trust me, everyone wants a weak currency now. What we have here is a implicit currency war. This is causing gold to go ballistic, this will slowly be followed by other real assets like commodities. That is why, the smart money better go for the commodity producers and also long all commodities with the exception of natural gas. When people lose confidence in currencies, they will park their monies in assets that are staples or will maintain its value. We are not going back to the days of barter trade but investors are going to view commodities as the best way to maintain their value of money.

In the mean time, we are really looking at a bullish market. How do I know that? First, the market is interpreting all the bad news in the market as a positive. Why? Thats because if the news is bad, there is a better chance of QE2. Take for example, the worse than expected non farm payrolls number led to a positive move in the US markets, crossing the important 11k. This could continue all the way till November when the Fed meets again and makes the decision to go ahead. The mid term elections are also on the cards, throw in the start of a very interesting earnings season. I believe we will not be seeing a stellar 3Q earnings season because expectations have been raised and the low base effect experienced last year will not be relevant this year. We will see a little volatility during this earnings season but we will continue to see the market continue to trend upwards.

So lets get back to our local market where the STI have come close to the 3200 points. The underlying market is extremely strong. How do I know that?

1) IPOs are coming back.

Yamada green resources, Global Logistics, Mapletree Industries, Oxley, etc are all coming into the market because of the positive sentiment.

2) More privatisation moves are in the works.

3) Placements are coming fast and furious.

Companies doing share placements are doing so well. Lorenzo doubled after announcing their share placement. HLN and Sino Grandness both did well after they announced their plans to raise money. Expect many more to come. The bull market is a good opportunity for companies to raise money at a good stock price.

4) IPOs have strong debuts. Yamada was a good example last week.

IPO price of $0.22 and opening at $0.36! Hitting a high of $0.41 and closing at $0.37. Yamada had a fantastic debut! Mushrooms....they are the hot thing now.

In order to close off this post, I just want to point out the stocks I like going forward in the short term. Noble ($2.01), Straits Asia ($2.32), Olam if it falls to $3.06, NOL ($2.07). These are all my short term trades and not fundamental picks.

Ok have a good week ahead.

Best,

SVI